Two Types of Cryptocurrency Wallets
A cryptocurrency wallet is a software application that stores private and public keys, giving a user access to their crypto funds on the blockchain. To put it simply, if you want to trade Bitcoin or any other cryptocurrencies, a digital wallet is a prerequisite to begin.
Today the cryptocurrency industry utilizes two types of wallets: hot wallets and cold wallets. However, there are also several specific ones in both hot and cold wallets. Each wallet has its positive and negative characteristics. Let’s discuss them one by one.
1. Hot Wallets
1) Web-based wallets
An online wallet or a web-based wallet is a service that a website offers. For example, your wallet on Binance or CoinTiger is a kind of web-based hot wallet.
Pros
Web-based wallets allow you to access cryptocurrency through various devices. No matter where you are, you can access the funds on your wallet using an internet-connected device.
Cons
You may be compromised on the security level as web-based wallets are less secure than the alternatives. Relying on a web-based wallet means you are trusting a centralized company to remain solvent and protect your account. You need to know that a wallet service provider has access to all the accounts on their website. Trading becomes difficult when a service provider sets a limit how much digital currency you can trade. Seek out secure and reliable wallets with proven track records.
2) Mobile wallets
This type of wallet allows you to carry your cards information, credit or debit, on your mobile device, untethering you from your plastic cards.
Now you can find a wide variety of mobile wallets for BTC, ETH, LTC, and other cryptocurrencies on popular app stores such as Microsoft Store, App Store, and Google Play.
Pros
You don’t have to copy/paste addresses as mobile wallets let you use your phone’s camera to scan QR codes to quickly and easily send and receive BTC.
Cons
You need to have a strong and secure internet connection to stay connected to your mobile wallet, which is not always possible. If you are using an old version of Android or Apple OS, you run the risk that the latest mobile wallets won’t be supported by your smartphone.
2. Cold Wallets
1) Hardware wallets
Hardware wallets are handheld products, using robust hardware encryption to store, send and receive the digital currencies. Though the competition in the space is growing, few companies manufacture hardware wallets.
Pros
Storing cryptocurrency on a hardware wallet is extremely easy and secure. The wallet remains offline and, thus, secure until the device is plugged into an internet-connected device. A comprehensive decentralized experience is what you get through hardware wallets as compared to web-based wallets, which do not give you complete control over your private keys.
Cons
If you are new to hardware wallets, recovering the stored coins can be a complex technical process for you in case you lose coins or your wallet breaks. You can recover the funds only if you have the private key or seed phrase to your wallet.
2) Paper wallet
A paper wallet is a cold storage technique to generate public and private keys while storing them offline on paper. This is a great way for users to store their cryptos without machines.
Pros
If you decided not to touch a portion of your portfolio for a long period of time, then a paper wallet is an excellent option. Paper wallets are offline, out of hackers’ reach.
Cons
After all, it is still a paper: you can damage and tear off it easily. Multiple backups are always important.
3) Desktop wallets
Desktop wallets involve downloading software directly to your computer. Many newer desktop wallets have begun embedding coin mixing functionality in their programs, allowing the user to trade without the use of a conventional crypto exchange.
Pros
Desktop wallets allow you to access your wallet and private keys in a secure way. Desktop wallet users typically enjoy a highly decentralized experience. A wide variety of desktop wallets for many different cryptocurrencies are available today.
Cons
There are a few reasons for why a user may not choose a desktop wallet. One major pitfall with many cryptocurrencies’ desktop wallets is the user must download the entire blockchain, which, in the case of Bitcoin, is over 150GB of data. Some desktop wallets become entirely unfunctional if the computer does not have enough free disk space to download the entire blockchain. Also, users refrain from using this type of wallet as they have to synchronize it with blockchain every time they want to use the wallet.
How to protect your wallet?
No matter what type of wallet you choose, security is always important; therefore, you must implement the best security practices to keep your crypto safe from scammers.
a) Your wallet’s security is similar to data protection on your computer. Whatever you do online, from browsing online to sending email attachments, stay alert.
b) If you want to get access to an online exchange, take advantage of Google authenticator with a single IP, and use it as your VPN to trade through mobiles.
c) Select a reliable exchange that provides ease of use, flexibility for trade and maintains a good reputation, such as CoinTiger, This exchange is never attacked by hacker successfully, while other exchanges lost cryptocurrency from time to time.
d) Backups can save you. Hardware failures and human slip-ups can put your data in danger, but a backup can restore your wallet in no time.
e) Passwords and encryption are not end-all solutions as they do not prevent scammers or another malware. It’s a good idea to install leading antivirus software to secure your wallet?
f) Choose a powerful password. Switch to two-factor-authentication both for login and transaction procedures. Refrain from exposing your wallet or exchange to social media sites.
g) Never send your private key to anyone.
